What type of expense do bad and doubtful debts fall under?

Bad and doubtful debts are classified as estimated expenses because they represent amounts that a business anticipates it may not collect from customers who owe them money. Unlike direct or fixed expenses, which refer to actual costs incurred or consistent expenses over time, estimated expenses are inherently uncertain. They are based on management's estimation of potential losses due to uncollectible accounts.

In accounting, companies use an allowance method to account for bad debts, which involves estimating the portion of receivables that may not be collectible and creating an allowance for these anticipated losses. This estimation helps businesses present a more accurate financial position by recognizing potential risks to cash flow.

Understanding this classification is crucial for accurate financial reporting and management decision-making, as it reflects the true revenue-generating potential of the business.